Winding-up Lump Sum

Gavvo

Hello,

After some friendly thoughts on my pension.....I am pretty clueless when it comes to pensions....

My ex-company scheme is winding up and I've been offered a lump sum (estimated at £13,000 before tax - likely to be 40%), although I know this final amount could change....

I am 31 and currently pay well into my pension (me 5%, company 10%) but the lump sum would be nice right now to pay off a bit of my mortgage or go towards a wedding......

I know no one will actually know how much this will be worth when I retire but if I said it was to be £13000 in my pension, how much would this be worth as a monthly figure or something like this? Is it at all possible to get a rough idea?

As I said, I'm pretty clueless on pensions, so go easy on me! ;-)

Thanks in advance for any input!

jamesd

About £650 a year assuming 5% of capital as what is paid out. It varies. I assumed that it keeps pace with inflation and pays out an inflation-linked pension.

Paying off a mortgage with this or overpaying on a mortgage instead of investing is throwing away money. Investment returns in the UK's main stock market averaged over 10% plus inflation for the years from 1977 through 2003. Even taking a cautious view of six or seven percent plus inflation you're losing out by the difference between that and your mortgage interest rate, compounded over the years. It's only really appropriate for those who aren't comfortable taking investment risk or who just wan to be free of a mortgage more than they want the same amount of money in savings and investments.

If you'd borrow at personal loan rates for the wedding it'd be a better idea to use the money for the wedding.

You're getting a very good deal on the current company contributions into a money purchase pension scheme.

Gavvo

Thanks very much for the reply James. Very helpful and much appreciated.

If I'm 100% honest with myself, I probably don't need the money right now but the thought of a nice little lump sum interests me!

Aaaarrrgghh!

jamesd

I see nice lump sums in my stocks and share ISA and other investments. That gives me financial security - I know I can last a long time if I couldn't work or just lost my job and it's part of planning to be able to retire before state pension age. Can't do that without putting money away.